Summary of responses to ACD consultation

Introduction

This document summarises the responses to the Government’s recent consultation on the European Draft Directive on Airport Charges. The consultation began on 26 March 2007 and closed on 18 June 2007. A stakeholder symposium was held on 26 April 2007 at DfT in London.

The Government received 22 responses to its consultation on the draft European Directive on Airport Charges. A list of respondents is included at Annex B.

The tables below show a breakdown of responses received by organisation and sect or:

Table 1: Organisation Analysis

Type of Organisation	Number of Respondents	Percentage Respondents
Small to Medium Enterprise (up to 50 employees)	1	4.5
Large Company	14	63.6
Representative Organisation	5	22.7
Trade Union	1	4.5
Interest Group		0.0
Local Government		0.0
Central Government		0.0
Member of the public		0.0
Other (inc Regulator)	1	4.5
Total	22

Table 2: Aviation Sector Analysis

Type of Organisation	Number of Respondents	Percentage Respondents
Airline / Airline Representative Organisation	5	29.4
Airport / Airport Representative Organisation	10	58.8
Airport Consultative Committee	2	11.8
Total	17

Consultation Response Analysis

The following section analyses responses to each question posed in the consultation and gives Government’s response.

1. a) Do you think that a passenger threshold is an effective way to establish which airports should fall within the scope of the Directive?
1. b) If so, is the proposed 1 million passenger per annum (mppa) threshold appropriate?

2. Can you suggest any alternative ways to establish which airports in a Member State should be subject to the measures proposed in the Directive?

Four of the 20 respondents who responded to this question supported using a passenger threshold to determine the scope of the Directive, while one supported using 1 mppa as the threshold. Most respondents, including both airlines and airports, believed a passenger threshold was not a good way of targeting airports with market power, where they may be a rationale for regulation, and the 1 mppa would mean a disproportionately large number of UK airports would be subject to the Directive. A range of alternatives were suggested, all with the aim of targeting the Directive more effectively at airports where there may be a case for regulation. These included using a test to identify airports with substantial market power, basing a threshold on market share or some combination of these two.

Government Response

The Government agrees that a 1 mppa threshold is inappropriate to set the scope of the Directive. It supports the use of a 1% EU market share threshold to determine initially which airports should fall within the scope of the Directive. Additionally, the Government supports a market power test or "competition assessment" to be carried out by national regulators to determine which airports have substantial market power and should be brought into regulation, despite not falling within in the 1% threshold, or which airports do not have market power, despite falling within the threshold, and should be excluded from regulation.

3. Do you agree with the requirement for a mandatory process of consultation between the airport management and airport users at all qualifying airports?

There was a variety of responses to this question. 35% of respondents, including 4 airlines, agreed that consultation should be mandatory at least when airports proposed to change the level or structure of their charges. Others supported the principle of mandatory consultation at airports with substantial market power. A significant number questioned whether mandatory consultation was necessary or appropriate at airports operating in competitive markets, where consultation between airlines and airports formed part of normal commercial relationships, with little case for making it a legal requirement.

Government Response

The Government's view is that consultation should be required when there are significant changes to the system or level of charges, but not mandated to take place annually.

4. Do you think the proposed timescale for agreeing changes to charges would work in practice?

80% of respondents thought that a requirement to consult at least 4 months before revised charges were introduced and to publish agreed charges 2 months in advance did not allow sufficient time for consultation and for airlines to adapt. A longer period or allowing greater flexibility would be more appropriate. Two respondents thought the proposed timetable would be workable in practice.

Government Response

The Government's preferred approach is that the Directive should not include a timetable for consultation on airport charges. Where consultation was appropriate, when there were significant changes to charges, the Directive should allow adequate time for consultation and discussion, taking into account airlines’ requirements.

5. Would you be content for the CAA to take on the role of Independent Regulatory Authority (RA) in the UK? If not, do you have any alternative suggestions?

84% of respondents were content for CAA to be the UK Independent Regulatory Authority as defined in the Directive, 2 were not. One argued for a separate ombudsman to be set up, another thought CAA as regulator should concentrate on ensuring markets operated competitively. Many of those who were content for CAA to take on this function raised concerns about the funding and resource implications given the wider and different role for an RA than that currently carried out by CAA.

Government Response

The Government agrees CAA would be the best organisation to be the UK Independent Regulatory Authority. Funding and resource implications for CAA will depend on the final scope of the Directive.

6. Do you think that arbitration by an IRA would be an effective method of resolving disagreements between airports and airlines for all or any of the Directive's provisions?

7. How do you think this would work in practice if, for example, an airport proposed a charge of x and the airport users preferred x-5? Would the IRA need to follow a process similar to a price cap review?

8. Are you content that the IRA's decisions in matter of arbitration would have binding effect?

Opinion was split almost equally on whether arbitration by the regulatory authority would be an effective method of resolving disputes. A number of respondents believed that there should be guidelines or criteria about how arbitration would operate and circumstances where the RA may intervene, including how to safeguard against frivolous or vexatious complaints. Without these, there was a risk of the RA being drawn into disputes at an increasing number of airports, where it would effectively set airport charges. Some respondents thought the regulator would in practice be required to carry out price cap reviews at an increased number of airports. This would have significant cost implications and might risk undermining incentives to invest.

Respondents also thought that two months was too short for a regulator to reach a decision, particularly for complex issues. One respondent stressed the need for all regulatory decisions to be published to aid transparency.

14 respondents answered question 8 about whether the RA's decisions should be binding. Of these almost half were content with binding decisions, in some cases provided Judicial Review could be sought to consider points of law.

Government Response

The Government does not believe the right to seek arbitration from the RA as drafted is appropriate, and supports the views of consultees who argue for a more tightly defined role for a regulator including criteria under which disputes could be assessed. The Government believes that appeals to a regulator should be on the basis of evidence of anti competitive behaviour by airports or airlines, in line with standard competition law.

9. Will the transparency requirements affect your normal commercial relationships?

10. a) Do you believe that these transparency requirements are required at all airports with over 1 million passengers per annum?
10. b) What costs and benefits would ensue?

Respondents had a variety of views about these questions.

Small and medium airports were concerned about the effects the transparency requirement would have on their relationships with airlines. Some argued that mandatory transparency requirements were not needed when airports operated in competitive market. Disclosing cost and revenue information could effect their commercial position. These airports were also concerned about the costs of establishing systems to provide the information required by the Directive - some estimated start up costs to be in the region of £100,000 per airport, with annual costs of tens of thousands. Large airports were in favour of transparency in principle but had concerns about the detail of the Directive, which assumed a close relationship between costs and charges when in reality this wasn't always the case. Airlines were in favour of cost and revenue transparency from airports, although one was concerned about providing potentially confidential information to airport operators.

Government Response

The Government's is concerned that the transparency requirements could undermine competition. We would suggest aligning them with established accounting standards.

11. How do the proposals compare with current arrangements at UK and other Member State airports?

Respondents noted that the UK operates a privatised aviation market driven by market pressure and competition legislation. There was support for the UK system but one airline noted that other Member State legislation was currently inadequate. One airport noted that transposition of the Directive into Member State law would result in differences in how the Directive was implemented across Europe.

Government Response

The Government notes respondents’ comments, particularly regarding transposition. Whilst encouraging a consistent approach across the EU, we also recognise the importance of tailoring any regulation to meet national and local circumstances.

12. a) Do you think that compulsory service level agreements are needed to guarantee quality standards effectively?
12. b) How should any trade-off between higher standards and the cost of quality improvements be taken into account?

There was little support from respondents (9 out of 17 answered negatively) for mandatory service level agreements (SLAs) at all airports within the Directive's scope, although this was favoured by one airline. A number of respondents argued that this was not appropriate at airports that operated in competitive environments - in these circumstances airports and airlines had incentives to negotiate and agree service quality standards. There was however recognition of the useful role SLAs could play at airports currently subject to price cap regulation in the UK and the benefits of the process of constructive engagement on these issues between airports and airlines. SLAs could be appropriate at airports that had substantial market power or where an airport was acting anti competitively. Other points raised were; airlines would have different views about desired service levels, making airport wide agreements difficult; to be most effective handling agents would also need to be involved; and airline and passenger views on service quality might differ.

Government Response

The Government considers that airports would be required to consult airlines on service quality although it would not be mandatory to reach formal agreement. We suggest that rather than there being recourse to the RA purely regarding disputes on service quality, the RA would look at service quality when adjudicating on any dispute on price.

13. Do you have any other ideas on how quality standards could be maintained between airports and airlines?

Respondents had several alternative ideas for how quality standards could be maintained. Two airports thought that competition was the best way to meet airline needs. Another airport considered that passenger needs should be taken into account since airports provide direct services to passengers as well as to airlines. Two respondents suggested a greater role for the Regulatory Authority – it could be asked to step to protect user interests in the event an SLA could not be agreed or if there was evidence of anti-competitive behaviour. One airport thought that airports should be able to set standards and have the power to vary them in agreement with airlines.

Government Response

The Government thanks respondents for their suggestions.

14. a) Do you agree that airports should be able to differentiate charges based on the quality of service offered?
14. b) Will the proposals affect any charging policies you currently have?

15. In your view, will the provisions ensure that airlines get fair access to the terminals they want to use if demand for a particular facility exceeds its capacity?

95% of respondents agreed that airports should be able to differentiate charges based on service quality. Airports described the proposal as a welcome move and a logical principle. It was noted that differentiation of charges would be difficult to introduce at small single terminal airports and one airport highlighted that it would be important to allow several types of differentiating strategy, such as route incentivisation schemes. Airlines also agreed with the principle although no frills carriers thought the proposals did not go far enough whereas a full service carrier thought that any differentiation should be minimal. One stakeholder considered the non discrimination text not strictly necessary since non discrimination on the basis of nationality is already disallowed under the Treaty of Rome.

However, only 12% of consultees who answered question 15 believed that the provisions would ensure airlines got fair access to terminals if demand exceeded capacity. Three organisations thought that it was important to set objective and fair criteria for access, and one thought this would be a challenge for airports. It was considered that the proposals must take account of contracts as these should limit airlines’ propensity to switch to other services. Two smaller airports thought that the proposals would not result in fair access and would result in preferential treatment for some carriers.

Government Response

The Government supports the principles of non-discrimination and the ability to differentiate of charges.

16. We would be grateful to receive from airlines in writing any examples where they consider that they have been treated unfairly at Member State airports with respect to airport charges.

Several examples of potential unfair treatment of airlines were provided to us. These included examples of biased security charges in favour of transfer passengers, same charges at different terminals despite different infrastructure arrangements and examples of inappropriate consultation and transparency arrangements in two Member States.

Government Response

The Government thanks consultees for this information.

17. Do you think it is reasonable for security charges to meet security costs exclusively?

All except one of the respondents who answered this question believed that it was reasonable for security charges to meet security costs. Several respondents thought that what constituted “security costs” needed to be defined. It was generally thought that it was sensible to ring-fence security costs as they could be separately identified from other charges, but that this practice should not be extended to other types of charges. One airline thought that Member States should meet security costs and that other airport users, such as retail outlets, should also pay a charge. Another airline wished to avoid foreign airlines subsidising other Member States’ security costs. Several respondents referred to other agencies involved in security at airports, such as police, suggesting again the importance of defining what are security costs for the purposes of this Directive.

Government Response

The Government would like to ensure that any measures on security costs in this Diretive align adequately with other European legislation on this issue.

18. Do you think the Commission's proposals to regulate airport charges are targeted at, and proportionate to, the problems it has identified?

6% of respondents thought that the Commission’s proposals were well targeted and proportionate to identified problems and 83% did not. 11% were unsure. One respondent fully supported the Directive.

Six respondents considered the Directive as drafted to be disproportionate. Two airports and one trade association in particular wondered whether the Commission had any evidence of problems at airports and asked how a Directive could be drafted without such evidence. Small airports commented that the Directive would place an unnecessary cost burden on them.

Several airlines considered that the Directive as drafted lacks teeth as it is two wide in scope but shallow in detail. One full service carrier considered that the basis of the Directive should be ICAO’s principles on airport charging.

Many respondents thought that the Directive was not well targeted, which is reflected in responses to Questions 1,1a and 2.

Government Response

The Government believes that competition is preferable to regulation.

Indeed, the Government shares the European Commission’s policy goals, namely to ensure that the entire aviation supply chain is as competitive as possible, which we see as benefiting airports, airlines and, most importantly, passengers. Our overarching negotiating objective is to ensure a good outcome for passengers through well targeted and proportionate regulation.

As such, the Government would like to see a Directive targeted at airports where problems exist by means of a market power test and, ideally, a 1% EU market share threshold. The Government believes that a revised scope would make the Directive more effective.

19. Are there any other issues in connection with airport charges which you think need to be addressed within the scope of this Directive?

Consultees suggested the following as features that could be addressed within the scope of the Directive:

Directive should address issue of airport charges levied directly on passengers e.g. airport development charge at Newquay and Norwich;
Inclusion of a provision on ICAO principles in the Directive;
Single till should be a requirement;
Amending of definition of airport charge to include “reasonable return on assets” rather than “recovering all or part of costs”;
Airports must retain scope to design tariffs to include environmental incentives;
The Directive should include provisions on airport costs effectiveness and efficiency. The aim of regulation is to simulate competitive market conditions in monopoly situations.

Government Response

The Government thanks consultees for the points they raised in this section and we are keen to consider some of the points as part of the negotiating process.

20. Do you have any other comments you wish to make?

Respondents had the following additional comments:

Difficulties could arise with existing pricing arrangements/ contracts. Would the Directive include grandfathering/transition arrangements?
The proposals will result in increase in cost of flying for the passenger and affect the viability of many existing services;
It is important that the Directive does not undermine the existing UK system of regulation.

Government Response

The Government recognises the importance of the points raised above and would wish to consider them as part of the negotiating process. We are particularly interested in transitional arrangements for existing contracts and ensuring that the Directive is consistent with the existing UK system of regulation.